MASSIVE changes planned for pensions will make it far more unattractive for people to invest in their retirement.

The controversial changes are expected to generate savings of up to €700m for the cash-strapped Exchequer. But the overall impact of the changes will be to reduce net income for a family on €55,000 by around €1,000 a year.

Pension experts last night said the changes were far worse than expected. Irish Association of Pension Funds’ head of policy Jerry Moriarty warned the changes would cause nothing less than a collapse in pension savings.

The tax relief an employee can claim for investing in a pensions from PRSI and the health levy are to go from next year. This will mean that it will cost taxpayers between €8 and €9 extra for every €100 they put into a pension.

There are also plans to gradually reduce the income tax reliefs on pensions. At the moment higher rate taxpayers can get income tax relief of 41pc when they invest in a pension.

This means there is a net cost of €59 for every €100 put into a pension. The Government also wants to see this tax relief rate fall to 34pc in 2012, to 27pc in 2013 and 20pc in 2014.

This means that will cost €80 for every €100 invested in a pension in 2014. Add in the loss of the relief for the health levy and PRSI and each €100 will cost €80 compared with €48 at the moment.

So putting money into a pension, for higher rate taxpayers, will cost an addition €32. Additionally, the amount of earnings that qualify for pensions tax relief is to drop from €150,000 to €115,000.

This would hit the self-employed who put large amounts of income into a pension fund later in life. The standard fund threshold, or the size of a pension fund that can be put together to benefit from tax reliefs, will fall from the current €5.4m amount.

However, the reduction in the size of the fund has not been specified. The lump sum amount that people can get tax free when they retire will also be reduced to €200,000.

At the moment private sector workers can take a quarter of their pension fund as a tax-free lump sum at retirement.

Exemptions Income tax exemptions for those over 65 years of age is to be abolished. At the moment a single person who is retired can get retirement income of €20,000 before they pay any tax. For a retired couple the amount is €40,000.

The plan says this will be phased our over four years, in what will amount to a massive blow to pensioners getting a pension on top of the €12,000 a year contributory State pension.